Prime Minister Jacinda Ardern is foreshadowing a major restructuring of polytechnics and institutes of technology, which have cost the Government $100 million in recent bailouts.

The restructure, to be released next week, is expected to recommend turning the vocational education sector into a flexible network that focuses on greater co-operation between institutions to meet the needs of business.

In her 'State of the Nation' speech to a business audience this morning, Ardern outlined the economic challenges facing New Zealand, including US-China trade tensions and the uncertainty around Brexit.

While business confidence - which she described last year as the "elephant in the room" - has been less gloomy, she said it was important to lay solid foundations to prepare for a slowing global economy.


She said Education Minister Chris Hipkins would announce proposals to reform the vocational education sector next week.

"They are far reaching. But we firmly believe they must be," Ardern told the audience, which was hosted by Business NZ.

Ardern, who was accompanied by several ministers including Education Minister Chris Hipkins, Finance Minister Grant Robertson, Trade and Economic Development Minister David Parker, and Small Business Minister Stuart Nash, said the system was struggling and had been "left to drift, to muddle through".

"How is it, for example, that at a time when we're facing critical skill shortages, our polytechnics and institutes of technology are in many cases going broke?

"Over the last two years this Government has been forced to spend $100 million to bail out four polytechnics, and that is a pattern that started before we took office ... That is not the sign of a healthy and sustainable sector."

The main issues, she said, were a lack of integration, difficulties in engaging with business, and inconsistent results across the country, including the duplication of courses.

"We need a model where businesses, iwi and local government in every region play an active role in driving skills development.

"We need a system of training and skills development that is more flexible and more nimble so we can get people with the rights skills into the right jobs much faster."

This would become increasingly important as jobs become increasingly automated, which Ardern said is estimated to see the loss of up to a million New Zealand jobs.

Ardern opened her speech by repeating her wish to have the unemployment rate below 4 per cent by the end of the parliamentary term; the latest figures, released yesterday, saw the rate rise from 3.9 to 4.3 per cent.


She said the global economy was already beginning to slow down, with the International Monetary Fund projecting worldwide growth to ease from 3.7 per cent in 2018 to 3.5 per cent in 2019.

The Government's economic plan, as well as vocational education reforms, was to broaden New Zealand's trading base, have a fairer tax system - including the possibility of a capital gains tax - invest in long-term infrastructure, transition to a carbon-neutral economy, and invest in well-being.

Ardern was recently in Europe to promote a free trade deal with the EU and to seek assurances from British Prime Minister Theresa May that New Zealand businesses would be no worse off after Brexit.

The Government will release the report of the Tax Working Group on February 21, and Ardern said speculation on what the Government would do had been at times "feverish and not always accurate".

The Government will release its response to the report in April.

Ardern also plugged the Government's Wellbeing Budget planned for this year, which will prioritise transitioning to a low-emissions economy, lifting Māori and Pacific incomes, supporting innovation in the digital age, improving child and youth wellbeing, and addressing mental health needs, particularly for those under 24.

Ardern visited the Tasman area yesterday and took time this morning to praise the efforts of those fighting the fires in the region, where hundreds of homes have been evacuated.

"One of the co-ordinators of the many helicopters hauling water over the fire for 11 hours at a time was from Feilding and had travelled through the night to get there.

"He also happened to be colleagues with my first cousin – it was a true New Zealand moment."